In: Finance

Which of the following cause call and put option prices to rise? decrease in the underlying stock price increase in the volatility of the underlying stock decline in the hedge ratio decrease in the time to expiration none.

Increase in the volatility of the underlying stock can cause
call and put options to rise.Volatility refers to the degree of
movement in price.It encompasses the speed and magnitude of changes
in the price of the underlying asset.**The reason had to do
with the asymmetrical payoff structures of options. Because
increased volatility can only help option prices then the market
bids them higher.**

In relation to the options market, volatility is a reference to the fluctuation level in the market price of the underlying asset. Volatility is a metric for the speed and amount of movement for underlying asset prices. Cognizance of volatility allows investors to better comprehend why option prices behave in certain ways.

Two common types of volatility affect option prices. Historic volatility, known also as statistical volatility, measures the speed at which underlying asset prices have changed over a given time period. Historical volatility is often calculated annually, but because it constantly changes, historical volatility can also be calculated daily and for shorter time frames. It is important for investors to know the time period for which an option’s historical volatility is calculated. Generally, a higher historical volatility percentage translates to a higher option value.Implied volatility is a concept specific to options and is a prediction made by market participants of the degree to which underlying securities move in the future. Implied volatility, essentially, is the real-time estimation of an asset’s price as it trades. This provides the predicted volatility of an option’s underlying asset over the entire lifespan of the option, using formulas that measure option market expectations. When option markets experience a downtrend, implied volatility generally increases. Conversely, market uptrends usually cause implied volatility to fall. Higher implied volatility indicates that greater option price movement is expected in the future.

What are the prices of
a call option and a put option with the following characteristics?
(Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
Stock price
=
$80
Exercise
price
=
$75
Risk-free
rate
=
4.70% per year,
compounded continuously
Maturity
=
4 months
Standard
deviation
=
65% per
year
Call price
$
Put price
$

What are the prices of a call option and a put option with the
following characteristics? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g.,
32.16.)
Stock price
=
$91
Exercise price
=
$90
Risk-free rate
=
4.1% per year, compounded continuously
Maturity
=
4 months
Standard deviation
=
52% per year
Call price
$
Put price
$

What are the prices of a call option and a put option with the
following characteristics?(Do not round intermediate
calculations and round your final answers to 2 decimal places
(e.g., 32.16).)
Stock price
=
$85
Exercise price
=
$80
Risk-free rate
=
3.8% per year, compounded continuously
Maturity
=
5 months
Standard deviation
=
55% per year
Call price
$
Put price
$

Question 4
Which of the following will cause the AD to decrease?
A rise in consumer confidence
A rise in business confidence
A decline in government spending
An increase in exports
Question 5
If we assume that the supply of oil gets interrupted and as a
result the price of oil doubles, what would that do in the
short-run?
The short-run aggregate supply function will decrease, causing
the economy to experience a reduction in the level of output and a...

Which of the following would cause prices to rise and real GDP
to fall in the short run?
Question options:
an increase in the expected price level
an increase in the capital stock
an increase in the quantity of labor available

Problem 17-8 Black-Scholes
What are the prices of a call option and a put option with the
following characteristics? (Do not round intermediate calculations
and round your final answers to 2 decimal places (e.g.,
32.16).)
Stock price = $84
Exercise price = $80
Risk-free rate = 4.9% per year, compounded continuously
Maturity = 4 months
Standard deviation = 63% per year
Call price $
Put price $

You are looking at a put option on the pound in
which the underlying (i.e. the pound) is at $1.218 per pound at
expiration, the options are on 10,000 pounds, the exercise price is
$1.105 per pound, and the option premium was $0.02 per pound when
the option was purchased. What is the profit at
expiration of this option for the option holder?

Which of the following would cause prices and real GDP to rise
in the short run?
a. short-run aggregate supply shifts right
b. short-run aggregate supply shifts left
c. aggregate demand shifts right
d. aggregate demand shifts left

What are the deltas of
a call option and a put option with the following characteristics?
(Negative amount should be indicated by a minus sign. Do
not round intermediate calculations and round your answers to 4
decimal places, e.g., 32.1616.)
Stock
price
=
$56
Exercise
price
=
$55
Risk-free
rate
=
4.10% per year,
compounded continuously
Maturity
=
9 months
Standard
deviation
=
45% per
year
Call
option delta
Put
option delta

which of the following statement is INCORRECT for option
chains?
a- put and call contract out of the money are commonly
highlighted
b- the greek option chains are usually available for
analysis
c- bid and ask prices are provided for all the available
contracts
d- open interest provides the number of outstanding contract for
each put and call strike price
e- the provide a list of all the available expiration dates for
put and call option contract

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